New Delhi: Thousands of farmers are once again protesting on the Delhi borders, demanding a legal guarantee on Minimum Support Price (MSP) for their crops. Four rounds of talks between the government and farmer leaders have failed to reach a resolution, highlighting the complexity of the issue. The farmers are not ready to accept anything less than a legal guarantee on MSP, but the government is citing its helplessness to fulfill this demand of the farmers. If the government accepts the demands of MSP, then it will have an impact on the economy in many ways. Let us understand what is the complete arithmetic of MSP that is preventing the government from accepting it.


Why Are Farmers Insisting On MSP


COMMERCIAL BREAK
SCROLL TO CONTINUE READING

Farmers want a law mandating the government to buy their crops at MSP, a minimum price set by the government to protect farmers from market fluctuations.  MSP means minimum support price, which is the minimum rate at which the government buys grains from the farmers. It announces it twice a year before sowing in the rabi and kharif seasons. The purpose is to encourage the farmers to produce those crops that are within the ambit of MSP. The farmers who are stuck on the demand of MSP say that this law will increase the income of the farmers.


MSP Is An Old Idea


Experts of agricultural economy say that MSP is an idea of the 1960s, which does not fit the current era. At that time, the country was struggling with a shortage of grains. At that time, the government started the MSP system as a step to motivate the farmers to produce more crops, but now the country produces more grains than it needs. The country is in a ‘food surplus’ phase. In such a situation, the need for MSP is over.


According to the experts, the MSP system cannot last forever. Now there is more grain in the country than needed. Now there is a shortage of space to keep it, due to which a large amount of grain gets spoiled, but now MSP has become a political issue and a means of getting the votes of the farmers.


Government’s Helplessness In Not Accepting Demand Of MSP


The government buys only 13-14 percent of the grain that is grown in the country at MSP, the rest of the grain is sold in the open market. The grain that the government buys is also filled in the warehouses, which the government cannot distribute. Therefore, the government has also started a scheme of free grain. According to the CACP report, the FCI has a storage capacity of about 41 million tonnes of wheat-rice, but there is more than 74.4 million tonnes of grain stored.


Extra Expenditure On Legal Guarantee


The Food Corporation Of India has to spend 14 percent of the mandi tax, arhat tax, rural development cess, packaging, label, storage, etc. on buying wheat from the mandi above MSP, besides spending 12 percent to distribute those grains. In addition, 8 percent holding cost i.e. the cost of keeping it comes. In total, the FCI spends 34 percent extra on buying wheat above MSP. That is, the MSP cycle puts extra pressure on the agricultural economy.


The crops that are included in MSP are grown in 5.6 states of the country. According to the Shanta Kumar report of 2014, only 6 percent of the farmers in the country benefit from MSP. What about the rest of the farmers? Not only that, the biggest question is whether the country is ready to bear this extra burden of MSP.


Is Centre In Position To Bear The Burden?


The legalisation of MSP will put a heavy burden on the economy. According to Crisil’s estimate, if the government buys 16 out of 23 crops at MSP, then the government treasury will incur an additional burden of 10 to 13 lakh crore. The government spent 2.28 lakh crore rupees on buying crops at MSP in the year 2022-23, which is 6.25 percent of the total agricultural budget and only 25 percent of the purchase of MSP crops.


If it takes legal form, the figure will go somewhere else. Now pay attention to the government’s economic health report. According to the Times of India, India’s debt, which was 45.17 lakh crore in 2011-12, could rise to 183.67 lakh crore by 2024-25. This will be close to 80 percent of the country’s GDP. The IMF has also warned about India’s debt-to-GDP ratio. Currently, the total debt is equal to 81 percent of the country’s GDP.


In such a situation, is the government in a position to increase the burden on the government treasury by giving legal guarantee on MSP. This is a concern for the government or say that it is its helplessness.


Arguments Against MSP:


Outdated Policy: Introduced in the 1960s to address food shortages, it may not be suitable for a food-surplus nation.
Limited Impact: Experts argue that MSP only benefits a small percentage of farmers and may not be the most effective way to support agriculture.
Storage Challenges: Excess grains bought at MSP lead to storage issues and wastage.
Economic Burden: The government spends heavily on procurement, storage, and distribution, impacting other sectors. Implementing a legal guarantee could place a significant financial strain on the government, potentially impacting inflation and national debt.


Arguments for MSP:


Price Stability: Assures farmers a minimum income, protecting them from exploitation.
Investment Incentive: Encourages farmers to grow essential crops, ensuring food security.
Political Issue: MSP has become a political symbol, garnering farmer support and votes.